Most people avoid borrowing if they can; after all, who wants to be in debt? There are in fact, legitimate reasons to get a personal loan. Not all who take out a personal loan are those who over-spend on their credit cards or have a gambling debt to settle.
Picture a scenario here – Alex works as a technician and earns a salary of $3,000. He supports his wife and has a baby who has just turned one. With his salary, he is still able to save about $200 a month.
Unfortunately, Alex met with a road accident while he is on his motorbike. Luckily for him, he is able to get away with a small injury, but he needs to take some time off work and has no insurance. Although his Medisave can cover some of his hospital bills, he still needed to fork out $2,000. Together with the lost income, he will need a small sum of money to tide him over this tough period.
A personal loan could definitely help him here.
There are a number of legitimate life situations where a personal loan can be of great help. Be it a personal loan from a bank or a fast cash loan from a licensed moneylender, you will find that a timely loan that you can repay quickly is not a bad thing at all, if you are able to use it responsibly.
So what kind of situations call for one to apply for a personal loan? Here’s at least 5 of them:
1. Debt Consolidation
It is not uncommon to hear of someone who might have used up the maximum credit limit for their credit cards. Now, we all know that credit card interest rates are one of the highest around, charging some 26% annually. Compared to a personal loan from a bank, the personal loan is definitely way cheaper compared to credit card interest rate.
For someone in this situation, it may be a good idea to take up a debt consolidation loan to consolidate all the different credit card debts under one loan. Firstly, you will pay lower interest with this option; secondly, with just one debt to settle, you can better focus on clearing the one loan compared to struggling with deciding which debt you want to clear if you have multiple of them.
2. Medical Expenses
Most of us are covered under Medishield Life, a basic health insurance plan administered by the CPF Board which helps to pay for large hospital bills and some outpatient medical treatments. While our healthcare system is heavily subsidised and you may have health insurance to cover, there are deductibles and co-insurance which you need to pay for before you can proceed with your claims. Depending on your bill size, these payments can cause up to thousands of dollars, which you may not have the cash to pay for.
Instead of using a credit card which charges high interest rates, you may want to consider using a personal loan to cover you for these medical emergencies.
3. Finance small business
Starting out as an entrepreneur can be tough, and you may find yourself in a situation where you need some cash to ensure your books are in order. Getting a business loan from a bank can be tricky for a new start-up business, since you may not have a solid business plan on hand and the application process can be long.
Depending on your needs, taking a personal loan can be a quick solution for a temporary cash shortfall. Just be sure that you can repay in time in order to not incur high interest rates.
4. Prevent Insurance lapses
In the unfortunate situation where you are retrenched and short of emergency cash, you might want to ensure that your insurance do not lapse. In fact, during such a situation, having the insurance coverage can be very important- the last thing you want is to meet with a medical situation and not have your insurance coverage.
In order to ensure that your insurance do not lapse, you can work with your advisor to reduce your coverage needs, or ask for a premium holiday if that’s an option. Otherwise, consider a personal loan to help you tide over the temporary situation.
5. Financing your personal development
In this day and age when more and more jobs are replaced by technology, there is a need for us to upgrade our skills. Other than making use of your SkillsFuture credits, you may want to engage in more extensive self-development or job skills that can better your chances of stay relevant at work.
Most of the time, these courses do not come cheap so you may need some extra help. Investing in yourself can be a worthwhile cost, rather than spending your money on consumer goods. However, be sure that you work out your monthly repayments before you take out any loans, even if it is for personal development.
Looking at the above list, you can see that personal loans, when used correctly, can be a great help to relieve a short term cash crunch and alleviate some financial-related stress in your life. Always ensure that you know what your liabilities are before taking out a loan.